Africa offers superior power returns, says analyst

Power projects in Africa boasted a 25% return on investment, compared with 15% for power projects in Latin America, and 12,5% for Eastern European power projects, Frost & Sullivan energy and power systems analyst Jeannot Boussougouth said on Wednesday.

Speaking at the tenth Africa Power and Electricity conference, in Johannesburg, he added that Nigeria appeared to be the most successful African country in the deployment of independent power producers (IPPs), with 1 700 MW of power being supplied by about 20 IPPs. Gas was the main feedstock for IPP projects in the West African country, and higher gas prices might begin placing stress on IPPs operating in Nigeria.

Boussougouth concurred with many of the previous speakers at the conference that increased electricity tariffs would make for a more attractive environment for IPPs on the African continent.

Besides the cheap electricity issue, other challenges facing IPPs were identified as the global credit crunch and the difficulty companies had in raising funds in developing markets; the dilapidated state of existing electricity infrastructure; the volatility of fuel prices; the perceived risk of doing business in sub-Saharan Africa; and the slow reform of the power sector.

The skills shortage, including recruiting and training costs, was also identified as a market constraint. But despite these obstacles and challenges, Boussougouth indicated that there were also many supportive factors supporting private power investment, the most significant being the robust demand for electricity on the continent.

Further, the commitment of various African governments to improving access to electricity was also a positive underpin.

Boussougouth stated that it was envisaged that up to $563-billion would be spent on infrastructure projects throughout Africa up until 2030, and that, of this, about $162-billion would be spent on electricity infrastructure.

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